Company number: 06492082 EXPRO HOLDINGS UK 3 LIMITED Unaudited Condensed Consolidated Financial Statements Quarterly Report Nine months to
Contents Financial summary 1 Page Business review Quarterly sequential performance 3 Year to date performance compared to prior year 5 Quarterly performance compared to prior year 7 Financial position, liquidity and capital resources 9 Outlook and risk factors 11 Condensed consolidated financial statements Income statement 12 Statement of comprehensive income 14 Statement of financial position 15 Cash flow statement 16 Statement of changes in equity 17 Notes 18 Quarterly summary 26
Financial Summary Q3 FY 2014 vs. Q2 FY 2014 30 September Change Revenue CCR 1 347,337 339,278 2.4% Adjusted revenue 1 347,337 335,300 3.6% Adjusted operating profit 2 100,624 95,202 5.7% Adjusted operating margin 3 29.0% 28.4% 0.6pts Revenue 347,337 335,300 3.6% Operating profit 58,953 46,143 27.8% YTD FY 2014 vs. YTD FY Change Revenue CCR 1 1,016,415 869,687 16.9% Adjusted revenue 1 1,016,415 872,384 16.5% Adjusted operating profit 2 279,376 206,888 35.0% Adjusted operating margin 3 27.5% 23.7% 3.8pts Revenue 1,016,415 872,384 16.5% Operating profit 151,548 74,248 104.1% Q3 FY 2014 vs. Q3 FY Change Revenue CCR 1 347,337 286,245 21.3% Adjusted revenue 1 347,337 288,234 20.5% Adjusted operating profit 2 100,624 68,804 46.2% Adjusted operating margin 3 29.0% 23.9% 5.1pts Revenue 347,337 288,234 20.5% Operating profit 58,953 24,675 138.9% Financial position, liquidity and capital resources 31 March Change Cash 125,466 106,822 18,644 Working capital percentage 4 16.4% 12.6% 3.8pts Net debt 4 1,948,897 1,808,104 140,793 LTM leverage 4 5.4x 6.1x (0.7x) Liquidity headroom 4 253,105 201,036 52,069 1 Revenue CCR is defined as revenue which, for the comparative periods, is restated on a constant currency rate by converting each underlying transaction that arose in the period and applying the average monthly foreign exchange rate that prevailed in each month of the current period. Adjusted revenue excludes items that either distort the underlying trends of the business or are not considered by management to be part of the core operations of the Group. Further details of adjustments are set out in note 3. 2 Adjusted operating profit is defined as operating profit excluding depreciation and amortisation and other similar non-cash items, together with other items that either distort the underlying trends of the business or are not considered by management to be part of the core operations of the Group. Further details are set out in note 3. 3 Adjusted operating margin is the ratio of adjusted operating profit over adjusted revenue. 4 Working capital percentage, Net debt, LTM leverage and Liquidity headroom are defined within the business review on page 8-9. 1
Business review Introduction This report presents the quarterly results for Expro Holdings UK 3 Limited and its consolidated subsidiaries (the Group ). Financial and operating results The business review in the quarterly report presents financial and operating results for the following periods: - Three months to compared to three months to 30 September ; - Nine months to compared to nine months to ; - Three months to compared to three months to. Key points arising In order to facilitate an understanding of the Group s performance and progression over prior periods, segmental revenue and adjusted measures have been provided to identify key trends over the periods under review. We would like to highlight the following points in this report: Use of adjusted measures Adjusted items, be that revenue, costs or operating profit exclude impairment, depreciation and amortisation and other similar non-cash items together with other items that either distort the underlying trends of the business or are not considered by management to be part of the core operations of the Group. In summary, the exclusion of non-cash charges such as depreciation, amortisation and impairment means that this measure is similar to EBITDA. Full details are set out in note 3. Disposal of Connectors and Measurements On 2 May, the Group disposed of its Connectors and Measurements business ( C&M ), comprising the Tronic and Matre brands, to Siemens AG for a purchase consideration of $616.2m, which has been received in full. $10m of the consideration received has been recorded in the three months to 30 June within exceptional income. The Group incurred $14.7m of transaction costs associated with the sale, leaving net proceeds of $601.5m. The gain on disposal is $240.6m (see note 6). The C&M results are presented within discontinued operations and excluded from the segmental financial information. Bond tender offer On 6 June, the Group completed a tender offer to purchase $425.0m, inclusive of $16.5m of accrued and unpaid interest, of its outstanding 8.5% Senior Secured Notes due 2016. Capital reduction and loan capitalisation On 22 March, the Group concluded a restructuring of the financing provided by its shareholders. As a result, the Company issued $4,123.2m of ordinary shares for a consideration of $3.0m cash and the cancellation of $4,120.2m of shareholder loans. Following this capital restructuring the Company also undertook a capital reduction which reduced its share capital to $1,000 and fully extinguished its share premium account in order to create an equivalent amount of distributable reserves. Bond issue On 15 July, the Group issued senior secured notes with a nominal value of $100m, a coupon of 8.5% and maturity date of 15 December 2016. The notes were issued at an original issue premium of $4.5m, generating proceeds of $104.5m and incurring $3.5m of transaction costs and are being accounted for under the effective interest rate method. Revolving Credit Facility maturity On 15 July, the Group extended the maturity date of its Revolving Credit Facility by two years to 21 December 2016 and achieved a reduction in spread. 2
Business review Quarterly sequential performance 30 September Change Revenue CCR 1 347,337 339,278 2.4% Adjusted revenue 1 347,337 335,300 3.6% Adjusted operating profit 2 100,624 95,202 5.7% Adjusted operating margin 3 29.0% 28.4% 0.6pts Revenue 347,337 335,300 3.6% Operating profit 58,953 46,143 27.8% Overall trading performance Adjusted revenue in the three months to of $347.3m was up 2.4%, or $8.1m on a constant currency basis compared to prior quarter. This was mainly driven by equipment sales in PTI, increased well test and subsea activity in Angola and increased activity in Brazil, partially offset by reduced activity in Europe. The adjusted operating margin was 0.6pts higher than the prior quarter, driven by the leveraging effect of increased activity. Segmental revenue 30 September constant currency Change constant currency % Europe CIS 98,550 107,028 (7.9%) Sub-Saharan Africa 74,295 69,976 6.1% Middle East and North Africa 22,408 24,427 (8.3%) Asia 28,338 26,879 5.4% North America Land 19,759 18,945 4.3% North America Offshore 29,947 31,828 (5.9%) Latin America 31,736 28,739 10.4% Expro PTI 36,537 25,126 45.4% Equipment Sales 5,769 6,340 (9.0%) Other (2) (10) n/a Revenue CCR 1 347,337 339,278 2.4% Regional Businesses Europe CIS After several quarters of significant growth, revenue fell back seasonally in the three months to to finish $8.5m lower than the prior quarter at $98.6m. This was primarily driven by reduced well test activity in Cyprus, lower WWS sales in Norway and reduced revenues related to the Group s new well containment contract in the UK. Despite the seasonal effect, the adverse weather conditions in the North Sea worked relatively in our favour, with a number of job extensions leading to increased well test activity, particularly in Norway which partly off-set the negative variances. Sub-Saharan Africa In the three months to revenue of $74.3m was $4.3m higher than revenue in the prior quarter, continuing a trend of steady growth. The increased revenue was primarily the result of subsea activity in exploration block 15 in Angola. We also benefited from first revenues from fluids activity starting in Tanzania. Middle East and North Africa Revenue of $22.4m in the three months to ended $2.0m lower than the prior quarter. This was driven by decreased well test and wireline activity in Algeria, affected by temporary delays caused by issues with the importation of 3
Business review equipment, and the relative effect from our new production systems contract in Northern Iraq in the prior quarter. This was partly off-set by increased well test activity in Iraq. Asia Revenue in the three months to of $28.3m increased $1.5m sequentially, driven by higher subsea activity in India and China and increased equipment sales in China, but offset by decreased well test and subsea activity in Malaysia. North America Land Revenue of $19.8m in the three months to was marginally higher than in the prior quarter, reflecting increased well test activity offset by decreased power chokes activity. North America Offshore After three quarters of high activity, revenue fell back slightly to $29.9m which was primarily driven by tapering TCP activity in Alaska. There was also a slight shift in mix of business from subsea to well test in the Gulf of Mexico. Latin America In the three months to the revenue of $31.7m closed $3.0m higher than the prior quarter, primarily as a result of higher well test, fluids and subsea activity in Brazil, partially offset by lower WWS revenues, and by lower subsea activity in Mexico, caused by delays in operations. Expro PTI After a decline in the second quarter, revenue rebounded in the three months to the, growing by $11.4m to $36.5m. This was supported by revenues from a new contract to design and build an early production facility (EPF) for a customer in Africa. Equipment Sales Revenue of $5.8m in the three months to the ended in line with the prior quarter. 4
Business review Year to date performance compared to prior year Change Revenue CCR 1 1,016,415 869,687 16.9% Adjusted revenue 1 1,016,415 872,384 16.5% Adjusted operating profit 2 279,376 206,888 35.0% Adjusted operating margin 3 27.5% 23.7% 3.8pts Revenue 1,016,415 872,384 16.5% Operating profit 151,548 74,248 104.1% Overall trading performance Adjusted revenue in the nine months to of $1,016.4m was up 16.9%, or $146.7m on a constant currency basis compared to the same period last year. Revenue was significantly ahead in all business areas with the exception of Latin America and Equipment sales. The adjusted operating margin was 3.8pts higher than the same period last quarter, reflecting operational leverage effect of increased activity. Segmental revenue constant currency Change constant currency % Europe CIS 289,629 255,023 13.6% Sub-Saharan Africa 215,353 172,077 25.1% Middle East North Africa 70,767 61,143 15.7% Asia 82,514 62,755 31.5% North America Land 57,098 47,457 20.3% North America Offshore 92,798 69,909 32.7% Latin America 89,562 92,454 (3.1%) Expro PTI 102,735 78,549 30.8% Equipment Sales 15,785 30,241 (47.8%) Other 174 77 n/a Revenue CCR 1 1,016,415 869,687 16.9% Regional Businesses Europe CIS Revenue in the nine months to of $289.6m was $34.6m higher year-on-year, significantly driven by subsea and well test activity in Norway and the UK, increased WWS sales in Norway, higher well test in Kazakhstan and the first revenues on a new contract to provide well containment equipment for a UK based consortium. This was partly offset by the successful completion of a subsea contract in the Eastern Mediterranean and an early production facility (EPF) sale in the UK included in the prior year. Sub-Saharan Africa Revenue of $215.4m in the nine months to closed $43.3m higher than the same period last year, with higher subsea activity in Angola and Nigeria, growing well test activity in Ethiopia, South Africa, Gabon and Congo, first revenues from a new fluids contract in Tanzania and a new production systems contract in Chad as well as ramping up of activity across a number of product lines in Kenya. 5
Business review Middle East and North Africa In the nine months to revenue finished at $70.8m, up $9.6m compared to the same period last year, primarily driven by increased well test activity in Saudi Arabia and Libya, higher well test and fluids activity in Iraq and first revenues on a new production systems contract in Northern Iraq. Asia Revenue of $82.5m in the nine months to was $19.8m higher year on year, resulting from increased subsea activity in Australia and China and the start of a new subsea contract in India. North America Land Revenue in the nine months to of $57.1m closed $9.6m higher than the same period last year, as a result of the reclassification of power chokes revenue from equipment sales to a regional product line and increased TCP activity. North America Offshore Revenue in the nine months to of $92.8m was $22.9m up over last year, primarily due to higher activity across a number of product lines in the Gulf of Mexico and Canada and increased well test and TCP work in Alaska. Latin America Revenue of $89.6m in the nine months to December ended $2.9m lower year on year, with decreased well test, subsea and fluids activity offset by higher wireline and WWS activity in Brazil. Expro PTI Revenue in the nine months to of $102.7m closed $24.2m higher than the same period last year, thanks to increased sales in Malaysia as well two new contracts in Africa and a sale of an EPF in Venezuela. Equipment Sales In the nine months to revenue of $15.8m was $14.5m below last year, primarily resulting from the reclassification of powerchokes to a regional product line and the reduction in sales of burner booms compared to the same period last year. 6
Business review Quarterly performance compared to prior year Change Revenue CCR 1 347,337 286,245 21.3% Adjusted revenue 1 347,337 288,234 20.5% Adjusted operating profit 2 100,624 68,804 46.2% Adjusted operating margin 3 29.0% 23.9% 5.1pts Revenue 347,337 288,234 20.5% Operating profit 58,953 24,675 138.9% Overall trading performance Adjusted revenue in the three months to of $347.3 m finished up 21.3%, or $61.1m higher on a constant currency basis compared to the same quarter last year. Revenue was ahead in all businesses with the exception of Equipment Sales and Latin America. The adjusted operating margin was 5.1pts higher than the same period last year, driven by effective cost management and by the leverage impact of increased activity. Segmental revenue constant currency Change constant currency % Europe CIS 98,549 79,750 23.6% Sub-Saharan Africa 74,295 59,708 24.4% Middle East and North Africa 22,408 21,957 2.1% Asia 28,338 21,032 34.7% North America Land 19,759 15,369 28.6% North America Offshore 29,947 22,244 34.6% Latin America 31,736 33,746 (6.0%) Expro PTI 36,537 24,349 50.1% Equipment Sales 5,769 8,257 (30.1%) Expro Meters (2) (167) n/a Revenue CCR 1 347,337 286,245 21.3% Regional Businesses Europe CIS In the three months to revenue of $98.5m was $18.8m higher than the same period last year reflecting continued growth in the region, helped by increased well test and subsea activity in the UK and Norway and higher well test activity in Kazakhstan, partially offset by the successful completion of a subsea contract in the Eastern Mediterranean and an early production facility (EFP) sale in the UK in the prior year. Sub-Saharan Africa Revenue of $74.3m in the three months to closed up $14.6m year on year, driven by increased subsea activity in Angola and Nigeria, higher well test and wireline activity in Gabon and Congo, as well as first revenues from a new fluids contract in Tanzania and a new production systems contract in Chad. Middle East and North Africa Revenue in the three months to of $22.4m finished marginally over last year driven by increased well test and DST activity in Iraq, but offset by tapering well test and wireline activity in Saudi Arabia and Algeria. 7
Business review Asia Revenue in the three months to the was $7.3m higher than the same period last year at $28.3m, primarily reflecting increased subsea activity in Australia and China and revenues on a new subsea contract in India. North America Land Revenue of $19.8m in the three months to the grew $4.4m over last year, due to the reclassification of powerchokes to a regional product line and increased well test and DST activity. North America Offshore Revenue in the three months to the of $29.9m closed $7.7m higher last year on year, reflecting increased well test, subsea and wireline activity in the Gulf of Mexico and robust well test work partially offset by decreased TCP activity in Alaska. Latin America In the three months to the revenue of $31.7m declined $2.0m year on year, with lower subsea and well test activity in Mexico. Expro PTI Revenue in the three months to the increased $12.2m over last year to close at $36.5m, reflecting increased revenues in Malaysia and Vietnam and new activity in Africa. Equipment Sales Revenue in the three months to the of $5.8m closed $2.5m down from last year, primarily due to the reclassification of powerchokes to a regional product line and the reduction in sales of burner booms compared to the same period last year. 8
Business review Foreign exchange rates Foreign exchange rates at the reporting date $1 equals 31 March $1 equals Change % AUD (Australian Dollar) 1.1269 0.9653 17.8% BRL (Brazilian Real) 2.3426 2.0185 16.8% EUR (Euro) 0.7263 0.7802 (6.9%) GBP (Pound Sterling) 0.6064 0.6605 (8.2%) NOK (Norwegian Kroner) 6.1200 5.8377 4.8% Average foreign exchange rates $1 equals 30 September $1 equals $1 equals $1 equals AUD (Australian Dollar) 1.0747 1.0974 1.0530 0.9712 BRL (Brazilian Real) 2.2602 2.2719 2.1893 2.0069 EUR (Euro) 0.7342 0.7581 0.7547 0.7828 GBP (Pound Sterling) 0.6184 0.6506 0.6413 0.6290 NOK (Norwegian Kroner) 5.9904 6.0248 5.9529 5.8420 Financial position, liquidity and capital resources Working capital A key performance indicator for the Group is working capital as a percentage of quarterly annualised sales. This relative measure has increased to 16.4% from 12.6% from March, lifted up by the temporary increase to certain accounts receivable balances combined with a reduced level of payables, which resulted in the indicator being outside the Group s target range of 13% to 15%. We do not have any concerns over the recoverability of these receivable balances. 31 March Adjusted revenue for the quarter 347,337 328,318 19,019 Annualised adjusted revenue (Adjusted revenue x4) 1,389,348 1,313,272 76,076 Working capital 5 223,817 140,425 83,392 Add back accrued interest 4,123 24,815 (20,692) Adjusted working capital 227,940 165,240 62,700 Working capital percentage 6 16.4% 12.6% 3.8pts Change 5 Working capital is defined as inventories and trade and other receivables, less trade and other payables as set out within the condensed consolidated statement of financial position. 6 Working capital percentage is the ratio of adjusted working capital over annualised adjusted revenue 9
Business review Capital expenditure 30 September Change from prior quarter Change from prior year Capital expenditure 7 32,579 32,300 279 105,428 96,136 9,292 During the three months to capital expenditure was consistent with the prior quarter. Year on year, the Group has marginally increased capital expenditure by $9.3m driven by subsea contracts in Angola, Nigeria, Norway and the Gulf of Mexico, as well as well test and DST product lines. Well test spending was mainly for projects in Norway and the Middle East and DST spending was connected to an upgrade of our fleet. Net debt 31 March Finance leases (7,472) (8,495) 1,023 Senior secured notes (1,061,754) (951,691) (110,063) Other interest bearing loans (1,005,137) (954,740) (50,397) Less cash 125,466 106,822 18,644 Total net debt (1,948,897) (1,808,104) (140,793) Change Leverage During the nine months to, the Group s net debt decreased to 5.4 times its adjusted operating profit, as set out below. 31 March Net debt 1,948,897 1,808,104 140,793 Adjusted operating profit from continuing operations over last 12 months 363,255 290,807 72,448 Adjusted operating profit from discontinued operations over last 12 months - 6,535 (6,535) Total adjusted operating profit over last 12 months 363,256 297,342 65,914 LTM leverage 5.4x 6.1x (0.7x) Change Liquidity During the nine months to, the Group s total liquidity headroom increased by $52.1m to $253.1m, as set out below. 31 March Cash 125,466 106,822 18,644 Undrawn loan facilities 132,337 132,337 - Ring-fenced cash - (34,165) 34,165 Change Trapped cash (4,698) (3,958) (740) Liquidity headroom 253,105 201,036 52,069 7 Capital expenditure is the equivalent of cash outflow on the purchase of property, plant and equipment as set out within the consolidated statement of financial position. 10
Business review Covenants The Group has maintenance covenants on its mezzanine loan and revolving credit facility. During the period under review and at, the Group was in compliance with these covenants, and continues to closely monitor these covenants against its financial projections. Outlook and risk factors The Group s performance continues to be encouraging. Adjusted revenue in the quarter to is 21.3% higher compared to the same quarter in the prior year, on a constant currency basis. As regards the next three months, the Group remains cautiously optimistic and expects to see a continued improvement in performance, reflecting the continued strengthening in the international oil and gas sector and the benefits of our capital expenditure programme. This anticipated near term improvement is, however, subject to the timing of significant offshore oil and gas developments, which in turn are subject to the decision making processes of both International and National Oil Companies. In the longer term, the Group continues to believe it has excellent growth prospects reflecting the opportunities arising from the continued demand for hydrocarbons, the tightening of supply and its position within the Oil Field Service sector. 11
Condensed consolidated income statement Period ended Note Adjusted Adjustments 8 Total Adjusted (Restated) Adjustments 8 (Restated) Total (Restated) Continuing operations Revenue 3 347,337-347,337 288,234-288,234 Cost of sales (236,751) (48,024) (284,775) (211,076) (42,948) (254,024) Gross profit 110,586 (48,024) 62,562 77,158 (42,948) 34,210 Administration expenses (13,930) 6,353 (7,577) (9,638) (1,181) (10,819) Post tax share of results from JV 3,968-3,968 1,284-1,284 Operating profit 3 100,624 (41,671) 58,953 68,804 (44,129) 24,675 Net finance costs 4 (58,456) (186,060) Profit/(Loss) before tax 497 (161,385) Tax 5 (8,790) 9,143 Profit /(Loss) after tax (8,293) (152,242) Discontinued operations Profit after tax 6-9,767 Profit /(Loss) for the period (8,293) (142,475) Attributable to: Equity holders of the parent (8,293) (142,475) 8 Details of adjustments are included in note 3. 12
Condensed consolidated income statement Period ended Note Adjusted Adjustments 8 Total Adjusted (Restated) Adjustments 8 (Restated) Total (Restated) Continuing operations Revenue 3 1,016,415-1,016,415 872,384-872,384 Cost of sales (705,810) (140,625) (846,435) (637,617) (129,264) (766,881) Gross profit 310,605 (140,625) 169,980 234,767 (129,264) 105,503 Administration expenses (41,068) 12,797 (28,271) (34,970) (3,376) (38,346) Post tax share of results from JV 9,839-9,839 7,091-7,091 Operating profit 3 279,376 (127,828) 151,548 206,888 (132,640) 74,248 Net finance costs 4 (167,004) (560,807) Loss before tax (15,456) (468,559) Tax 5 (23,068) (12,158) Loss after tax (38,524) (498,717) Discontinued operations Profit after tax 6-236,530 Loss for the period (38,524) (262,187) Attributable to: Equity holders of the parent (38,524) (262,187) 13
Condensed consolidated statement of comprehensive income Period ended Note Profit/(Loss) for the period (8,293) (142,475) (38,524) (262,187) Transferred to income statement on cash flow hedges 4 (275) (275) (825) 701 Actuarial gains on continued defined benefit pension schemes - - - - Other comprehensive income for the period, net of tax (275) (275) (825) 701 Total comprehensive loss for the period, net of tax (8,568) (142,750) (39,349) (261,486) Attributable to Equity holders of the parent (8,568) (142,750) (39,349) (261,486) 14
Company number: 06492082 Condensed consolidated statement of financial position At 31 March Note Non-current assets Goodwill 1,265,732 1,265,732 Intangible assets 727,442 789,758 Property, plant and equipment 7 434,098 421,392 Interest in joint ventures 31,874 22,158 Deferred tax assets 3,072 2,562 2,462,218 2,501,602 Current assets Inventories 64,487 48,002 Trade and other receivables 403,075 383,968 Tax receivables 8,377 12,079 Cash 125,466 106,822 Asset held for sale 6 463 463 601,868 551,334 Current liabilities Derivative financial instruments 10 - (40,860) Trade and other payables (243,482) (291,545) Finance leases (1,778) (1,643) Tax liabilities (71,809) (72,203) Provisions 8 (9,561) (12,799) (326,630) (419,050) Net current assets 275,238 132,284 Non-current liabilities Finance leases (5,694) (6,852) Senior secured notes 9 (1,061,754) (951,691) Other interest bearing loans 9 (1,005,137) (954,740) Provisions 8 (2,014) (1,770) Deferred tax (196,069) (213,870) Pension deficit (23,311) (22,137) (2,293,979) (2,151,060) Total assets less total liabilities 443,477 482,826 Equity attributable to owners of the parent Share capital 1 1 Other reserves (50,255) (49,430) Accumulated profit 493,731 532,255 Total equity 443,477 482,826 The financial statements were approved by the directors and authorised for issue on 25 February 2014. 15
Condensed consolidated cash flow statement Period ended Note Total Total (Restated) Operating profit from continuing operations 151,548 74,248 Operating profit from discontinued operations 6-6,261 Operating profit 151,548 80,509 Non cash items before movements in working capital 11 126,330 124,531 Operating cash flows before movements in working capital 277,878 205,040 Changes to inventories (16,486) (6,108) Changes to receivables (20,337) (58,890) Changes to payables (11,628) 25,098 Changes to provisions and defined benefit contributions (3,922) (3,284) Cash generated by operations 225,505 161,856 Income taxes paid (39,119) (25,100) Interest paid (167,906) (174,922) Net cash flows from operating activities 18,480 (38,166) Investing activities Interest received 75 151 Purchase of property, plant and equipment (105,428) (96,136) Proceeds on disposal of property, plant and equipment 1,059 2,696 Purchase of intangible assets (6,890) (6,717) Net cash inflow on disposal of subsidiary 10,000 580,142 Payment of deferred consideration - (246) Dividend received from joint venture 4,953 9,395 Net cash flows from investing activities (96,231) 489,285 Financing activities Proceeds from borrowings 9 20,111 149,403 Repayment of borrowings 9 (20,111) (149,403) Proceeds from bond 104,500 - Bond repayment - (408,507) Payment of transaction costs (7,133) (1,518) Repayment of finance leases (1,315) (2,325) Net cash flows from financing activities 96,052 (412,350) Net increase in cash 18,301 38,769 Cash at beginning of period 106,822 44,018 Cash from discontinued operations classified as held for sale at the beginning of the period - 8,005 Effect of foreign exchange 343 380 Cash at end of period 125,466 91,172 16
Condensed consolidated statement of changes in equity Period ended Share capital Share premium Translation reserve Hedging reserve Equity reserve Accumulated profits Attributed to equity holders of parent At 1 April 1 - (53,404) 820 3,154 532,255 482,826 Loss during the period - - - - - (38,524) (38,524) Comprehensive loss - - - (825) - - (825) At 1 - (53,404) (5) 3,154 493,731 443,477 Period ended Share capital Share premium Translation reserve Hedging reserve Equity reserve Accumulated deficit Attributed to equity holders of parent At 1 April 200 249,676 (53,404) 408 3,075 (3,437,760) (3,237,805) Loss during the period - - - - - (262,187) (262,187) Comprehensive income - - - 701 - - 701 Discontinued cash flow hedges transferred to income statement - - - (15) - - (15) At 200 249,676 (53,404) 1,094 3,075 (3,699,947) (3,499,306) 17
Notes to the condensed consolidated financial statements Period ended 1. Corporate information The condensed consolidated financial statements of the Group for the nine months ended were authorised for issue by the Company s directors on 25 February 2014. The Company is a limited company incorporated in Great Britain and domiciled in England and Wales. 2. Basis of preparation and accounting policies Basis of preparation The basis of preparation and accounting policies set out in the annual report and accounts for the year ended 31 March have been applied in the preparation of these condensed consolidated financial statements as disclosed below. The condensed consolidated financial statements for the nine months ended have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union. The condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group s annual financial statements for the year ended 31 March. The figures for the nine months ended and nine months ended are unaudited and do not constitute full accounts within the meaning of s.435 of the Companies Act 2006. The financial statements for the year ended 31 March, which have been delivered to the Registrar of Companies and on which the auditors have issued an unqualified audit report, did not contain a statement under s.498(2) or s.498(3) of the Companies Act 2006. The financial risks are detailed in the business review of the Group s annual financial statements as at 31 March. Having considered these risks and the current economic environment it is expected that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly the condensed consolidated financial statements have been prepared on a going concern basis. Accounting policies The accounting policies adopted in the preparation of the condensed consolidated financial statements are consistent with those followed in the preparation of the Group s annual financial statements for the year ended 31 March. The comparatives have been restated in line with a change of accounting policy made in the Group s annual financial statement for the year ended 31 March, as follows: Change of accounting policy classification of equity accounted results of joint ventures The Group has changed its accounting policy for the classification of equity accounted results of joint ventures and associates within its income statement. The new policy is to record equity accounted results of joint ventures and associates within its operating profit whereas under the previous policy these were reported below operating profit. The impact of the change of policy is to increase operating profit in the period to by $9.8m and in the period to by $7.1m. There is no impact on any of the other lines in either the income statement or other primary statements. 18
Notes to the condensed consolidated financial statements Period ended 3. Adjustments Adjusted revenue Adjusted revenue is defined as revenue excluding items that either distort the underlying trends of the business or are not considered by management to be part of the core operations of the Group. Revenue 347,337 288,234 1,016,415 872,384 Adjustments - - - - Adjusted revenue 347,337 288,234 1,016,415 872,384 Adjusted operating profit Adjusted operating profit is defined as operating profit excluding impairment, depreciation and amortisation and other similar non-cash items, together with other items that either distort the underlying trends of the business or are not considered by management to be part of the core operations of the Group. Operating profit 58,953 24,675 151,548 74,248 Amortisation of intangible assets 22,896 21,607 69,304 66,411 Property, plant and equipment depreciation 26,103 21,905 73,637 65,352 Loss on disposal of property, plant and equipment 451 299 456 485 Release of property, plant and equipment impairment provision - (282) - (1,203) Proceeds on disposal of business - - (10,000) - Release of inventory provision (9,551) - (9,551) - Business rationalisation 233 67 1,577 794 Business improvement initiatives (36) 379 645 1,440 Other costs 1,575 154 1,760 (639) Adjusted operating profit 100,624 68,804 279,376 206,888 Business rationalisation Business rationalisation costs relate mainly to redundancy costs. Business improvement initiatives Costs are primarily third party consultancy fees in relation to specific projects focused on facilitating change. Proceeds of disposal of business This income in the nine months to relates to the final purchase consideration received in relation to the sale of the Connectors and Measurements business. This has been classified as exceptional income within administrative expenses. Release of inventory provision Improved tracking and management of inventory has resulted in better data becoming available which has led to a change in the Group s provisioning methodology and consequently a release against the inventory provision. The out of period impact of this change has been reflected within exceptional items. Other costs Other costs include movements in exceptional provisions and legal and professional fees. 19
Notes to the condensed consolidated financial statements Period ended 4. Net finance costs Finance income: Bank interest receivable 18 50 75 151 Expected return on defined benefit pension assets 2,544 2,572 7,390 7,626 Total finance income 2,562 2,622 7,465 7,777 Finance Costs: Senior secured notes interest (23,171) (21,069) (67,056) (69,477) Revolving credit facility interest - (15) (32) (498) Mezzanine loan cash settled interest (11,588) (11,367) (34,571) (33,203) Mezzanine loan payment in kind interest (16,742) (16,018) (49,757) (46,122) Amortisation of financing costs (6,131) (3,183) (13,258) (24,175) Commitment fees (449) (548) (1,502) (1,484) Finance leases (252) (293) (796) (813) Shareholder loan interest - (133,582) - (380,799) Other interest payable (396) (265) (596) (1,084) Total interest expense (58,729) (186,340) (167,568) (557,655) Fair value gain/(loss) on cash flow hedges 45 (117) (494) (3,032) Transferred to income statement on cash flow hedges 275 275 825 (701) Finance cost on defined benefit pension obligation (2,323) (2,294) (6,746) (6,803) Other payable (286) (206) (486) (393) Total finance costs (61,018) (188,682) (174,469) (568,584) Net finance costs (58,456) (186,060) (167,004) (560,807) 5. Tax Current tax: Current period (16,976) (4,596) (43,273) (28,303) Prior period 2,076 1,249 1,785 (735) Deferred tax: (14,900) (3,347) (41,488) (29,038) Current period 6,110 12,490 18,420 16,880 (8,790) 9,143 (23,068) (12,158) The effective income tax rate in the nine months to is -149.3% (nine months to : -2.6%). The tax charge has been calculated by categorising income and applying the best estimate of the annual effective income tax rate for each category of income to the pre-tax income arising in that category for the nine month period. 20
Notes to the condensed consolidated financial statements Period ended 6. Discontinued operations On 2 May, the Group sold its C&M business, comprising the Tronic and Matre brands, to Siemens AG for a purchase consideration of $616.2m. As at the year ended 31 March, the Group had received $606.2m and incurred transaction costs of $14.7m, leaving net proceeds at $591.5m. The remaining $10m was received in the three month period to 30 June and recorded within exceptional income. The C&M business is a market leader in the design, manufacture, assembly and installation of subsea electrical power and data connectors and temperature and pressure sensors. Results from discontinued operations were as follows: Revenue - - - 12,754 Cost of sales - - - (6,602) Administration expenses - - - 109 Operating profit from discontinued operations - - - 6,261 Net finance costs - - - (126) Tax - - - 105 Trading profit after tax from discontinued operations - - - 6,240 Gain on sale of business - 9,767-230,290 Profit after tax from discontinued operations - 9,767-236,530 Major classes of assets and liabilities of the C&M business classified as held for sale as at were as follows: Assets At At 31 March Property, plant and equipment 463 463 Assets classified as held for sale 463 463 Net assets associated with the disposal group 463 463 Net cash flows relating to discontinued operations, excluding intercompany transactions, were as follows: Net cash inflow from operating activities - - - 2,354 Net cash outflow from investing activities - - - (12) Net cash inflow from financing activities - - - 550 Net cash increase from discontinued operations - - - 2,892 21
Notes to the condensed consolidated financial statements Period ended 6. Discontinued operations (continued) The gain on disposal is as follows: As at As at 31 March As at Proceeds on disposal, net of transaction costs 601,550 591,550 591,231 Reduction of accrued transaction costs 4,328 4,328 4,328 Net assets on completion (365,269) (365,269) (365,269) Gain on disposal reported during the year to 31 March 230,609 230,609 230,290 Gain on disposal reported during the year to 10,000 - - The Group received the remaining $10m of proceeds in the three months to 30 June. This was recorded within exceptional costs. 7. Property, plant and equipment During the nine month period to, the Group acquired plant and equipment with a cost of $88.0m of which none related to finance leases (year ended 31 March : $137.5m of which $0.2m related to finance leases), the movement in the capital expenditure creditor totalled $17.4m (year ended 31 March : $8.6m). Assets with a net book value of $1.0m were disposed of by the Group during the nine months to (year ended 31 March : $4.6m). During the nine months to, the Group s contractual commitments for the acquisition of property, plant and equipment increased by $40.5m from $45.6m to $86.1m. 8. Provisions Deferred and contingent consideration Legal and other provisions Total At 1 April 729 13,840 14,569 Payments or amounts utilised (90) (2,209) (2,299) Released (7) (3,253) (2,962) Increase including unwinding of discounted consideration 601 1,929 2,530 Exchange difference 88 (51) 37 At 1,321 10,254 11,575 Included in current liabilities 493 9,068 9,561 Included in non-current liabilities 828 1,186 2,014 1,321 10,254 11,575 Provisions comprise management s best estimate of potential costs in respect of a review of certain issues resulting from the acquisition process, deferred consideration in respect of acquisitions and costs, penalties and fines arising from potential adverse outcome of various legal claims and unfavourable tax assessments in foreign jurisdictions. The likely timing of cash outflows relating to these matters is uncertain. The Group had no material contingent liabilities as at. 22
Notes to the condensed consolidated financial statements Period ended 9. Interest bearing loans Senior secured notes Effective interest rate % Maturity date 31 March Principal 9.91% 15 December 2016 (991,493) (991,493) Original issue discount 19,013 25,204 Transaction costs 11,678 14,598 Principal 8.30% 15 December 2016 (100,000) - Original issue premium (3,952) - Transaction costs 3,000 - (1,061,754) (951,691) Loans Mezzanine USD LIBOR +10.75% 15 July 2018 (1,024,635) (974,878) Revolving credit facility USD LIBOR +2.75% 21 December 2016 - - Principal (1,024,635) (974,878) Transaction costs 19,498 20,138 (1,005,137) (954,740) Total interest bearing loans (excluding shareholder loan) (2,066,891) (1,906,431) During the nine months to, a series of drawdowns on the Revolving Credit Facility totalling $20.1m were made, these were repaid during the period. On 6 June, the Group settled $425.0m, inclusive of $16.5m accrued and unpaid interest, of its outstanding 8.5% Senior Notes due 2016. As a result of the repurchase, an additional $8.9m of the discount and $5.3m of the transaction costs were amortised to the income statement in the prior year. On 15 July, the Group issued senior secured notes with a nominal value of $100m, a coupon of 8.5% and maturity date of 15 December 2016. The notes were issued at an original issue premium of $4.5m, generating proceeds of $104.5m and incurring $3.5m of transaction costs and are being accounted for under the effective interest rate method. On 15 July, the Group extended the maturity date of its Revolving Credit Facility by two years to 21 December 2016. On 22 March, the Group restructured the financing received from its shareholders. As a result of this capital restructuring $4,120.2m of shareholder loans were settled for consideration of an equivalent value ordinary share. 10. Derivative financial instruments The Group s mezzanine term loan is at a floating rate and bears interest fixed for periods of three months, based upon three month US Dollar LIBOR. As a result, the Group is exposed to cash flow interest rate risk. The Group held interest rate swaps designated as cash flow hedges with a fixed swap rate of 6.27% which matured on 31 December. Interest payable or receivable under the swap is the difference between the prevailing three month US Dollar LIBOR rate and the fixed swap rate. The swaps re-price on a quarterly basis when contractual cash flows fall due. The Group assessed the hedge effectiveness of its swaps both prospectively and retrospectively at 31 March 2011; the swaps were assessed to be ineffective retrospectively and as a result, hedge accounting ceased from 1 January 2011. The hedging reserve relating to the swaps is being amortised through profit and loss over the remaining life of the instruments. A fair value loss of $0.5m has been recognised in the income statement in the nine month period to ( : $0.5m). 23
Notes to the condensed consolidated financial statements Period ended 11. Non-cash items before movements in working capital Adjustments for: (Restated) Release of PPE impairment provision (182) (1,170) Amortisation of intangible assets 69,304 66,412 Depreciation of property, plant and equipment 74,352 65,900 (Profit)/Loss on disposal of property, plant and equipment (100) 485 Retirement benefit credit - (112) Gain on disposal of subsidiary (10,000) - Post tax share of results from joint venture (9,839) (7,091) Discontinued cash flow hedges transferred to income statement - (15) Unrealised foreign exchange 2,795 122 Non-cash items 126,330 124,531 12. Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. During the nine month period to, the Group entered into transactions with related parties who were not members of the Group: Goods and services provided to related party Goods and services provided by related party Amounts owed by related party The Investors Investors - 347 - Goldman Sachs International Other 9-905 - Umbrellastream Ltd Partnership Inc Ultimate parent company - - 976 Expro International Group Holdings Ltd Company under common control 51-2,615 Expro Holdings UK 2 Ltd Company under common control - - 1 CETS Joint venture 8,883-3,588 PVD Joint venture 691 - - Group directors Key management personnel - - 152 At 9,625 1,252 7,332 The Investors Key management personnel - 117 - Umbrellastream Ltd Partnership Inc Ultimate parent company - - 2,202 Expro International Group Holdings Ltd Company under common control 2,390-3,460 Expro Holdings UK 2 Ltd Company under common control - - 1 CETS Joint venture 11,158 37 10,125 PVD Joint venture 1,665 - - Group directors Key management personnel - - 1,718 At 15,213 154 17,506 9 Goldman Sachs International is considered to be a related party to the Group due to it being under common control with Goldman Sachs Capital Partners, a company that exhibits significant influence over the Group, due to its membership in the consortium making up the Investors. 24
Notes to the condensed consolidated financial statements Period ended Transactions with the Investors The "Investors" are a consortium comprising of funds managed or advised by Arle Capital Partners, together with Goldman Sachs Capital Partners and AlpInvest Partners N.V. The costs charged to the Group are the directors' fees of the Investornominated directors of, and board observers connected to, Expro International Group Holdings Ltd, the Company's principal holding company. This is in accordance with the terms of the Consortium Deed between the Company s subsidiary Expro Holdings UK 4 Ltd and the Investors, originally dated 6 November 2008. During the nine months to the Group also incurred advisory fees of $0.9m from Goldman Sachs International relating to the issue of senior secured notes disclosed in note 9. Transactions with Umbrellastream Ltd Partnership Inc The amount owed by Umbrellastream Ltd Partnership Inc is the balance due under the loan agreements whereby the Group funds the administrative costs relating to the Partnership. Transactions with Expro international Group Holdings Ltd and Expro Holdings UK 2 Ltd The transactions between the Group and these related parties represent recharges of costs the Group has paid on their behalf. Transactions with CETS and PVD At 31 March, the Group held a 50% stake in a joint venture, COSL Expro Testing Services (Tianjin) Co. Ltd ( CETS ) and a 49% stake in a joint venture, PV Drilling Expro International Company Limited ( PVD ). The amounts in the table above arise from trading transactions between the Group and the joint ventures. In addition to the amounts disclosed above, at 31 December a dividend of $1.4m was receivable from CETS ( : $3.9m). No dividend was receivable from PVD at ( : $0.2m). Transactions with Group directors The balance owed to the Group represents loans made to directors of group companies under the Management Incentive Plan. Provisions of $0.5m have been made for doubtful debts in respect of these loans. All of the amounts outstanding in the table above are unsecured and will be settled in cash. No guarantees have been given or received in respect of any of the outstanding amounts. 13. Events after the reporting date There were no events between the reporting date and the date the financial statements were authorised for issue that require disclosure. 25
Quarterly summary Period ended (Unaudited) 30 September (Unaudited) 30 June (Unaudited) 31 March (Unaudited) (Unaudited) Adjusted revenue 347,337 335,300 333,778 328,318 288,234 Adjusted operating profit 100,624 95,202 83,551 83,920 68,804 Adjusted operating margin 29.0% 28.4% 25.0% 25.6% 23.9% Adjustments 10 : Impairment of property, plant and equipment - - - 2,384 - Release of property, plant and equipment impairment provision - - - (1,203) 282 Amortisation of intangible assets (22,896) (22,981) (23,427) (20,656) (21,607) Property, plant and equipment depreciation (26,103) (24,640) (22,894) (24,168) (21,905) (Loss)/profit on disposal of property, plant and equipment (451) (136) 131 (551) (299) Gain on sale of business - - 10,000 - - Business improvement initiatives 36 (358) (323) (210) (379) Business rationalisation (233) (820) (524) (547) (67) Costs in respect of the management incentive plan - - - (509) - Release of inventory provision 9,551 - - - - Other (costs)/income (1,575) (124) (61) (1,329) (154) Share based payment - - - (79) - (41,671) (49,059) (37,098) (46,868) (44,129) Operating profit 58,953 46,143 46,453 37,052 24,675 10 Details of adjustments are included in note 3. 26